By Andrew A. Turner, J.D.
Deceptive practices by payday lenders continues to be a point of emphasis by federal regulators as the Federal Trade Commission has entered into settlement agreements with two online payday lenders resolving allegations that consumers were charged with undisclosed and inflated fees. For example, a contract used by the companies stated that a $300 loan would cost $390 to repay, but consumers were actually charged $975, according to the FTC.
Under the agreements, the lenders, Red Cedar Services Inc. and SFS Inc., will each pay $2.2 million and collectively waive an additional $68 million in fees to consumers that were assessed but not collected. The agreements, combined with previous settlements in the case against Red Cedar, SFS, AMG Services, Inc., and MNE Services, Inc, represent the largest FTC recovery in a payday lending case, with litigation still continuing against other lenders. In total, the FTC has recovered $25.5 million and secured $353 million in waived debt.
“Payday lenders need to be honest about the terms of the loans they offer,” said Jessica Rich, Director of the Bureau of Consumer Protection. “These lenders charged borrowers more than they said they would. As a result of the FTC’s case, they are paying a steep price for their deception.”
FTC allegations. The settlements stem from FTC charges initially filed in April 2012 alleging that the lenders and others violated the Federal Trade Commission Act by misrepresenting the cost of loans to consumers. The FTC also charged that the lenders violated the Truth in Lending Act by failing to accurately disclose the annual percentage rate and other terms of the loans, and made preauthorized debits from consumers’ bank accounts a condition of the loans, in violation of the Electronic Fund Transfer Act.
Settlement orders. In addition to the monetary judgments and extinguishment of debt, the final settlement orders prohibit Red Cedar and SFS from misrepresenting the terms of any loan product, including the payment schedule and interest rate, the total amount the consumer will owe, annual percentage rates or finance charges, and any other material facts. The orders also permanently enjoin the lenders from conditioning the extension of credit on preauthorized electronic fund transfers, and from engaging in deceptive collection practices.
In a prior settlement in the same case, AMG Services, Inc. and MNE Services, Inc. agreed to pay $21 million and waive an additional $285 million in charges that were assessed but not collected.
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